In the recent case of Cybernaut Growth Fund, L.P.1, limited partners accounting for approximately half of the partnership interest petitioned to wind up the partnership (Partnership) on just and equitable grounds, based upon loss of trust and confidence by the petitioning limited partners (LPs) the in general partner (GP). That petition was met by an application to strike out or stay the petition which asserted that: (i) the LPs had contracted out of their right to petition; and (ii) the petition could not proceed until an arbitration commenced by the GP had been resolved2.
The first of these points (contracting out) was disposed of by construction of the terms of the limited partnership agreement, which the Court found clearly preserved application of the relevant provisions of the Exempted Limited Partnership Law (Law) pertaining to winding up of the partnership. The Court in Cybernaut echoed the findings of the Court of Appeal in TNT N.V. v Logispring GP L.P.  CILR 456, by finding that express language excluding those provisions of the Law would be required, but, like the Court of Appeal in TNT, the Court in Cybernaut stopped short of deciding whether an express provision would have been effective as a matter of public policy. It remains to be seen whether commercial practice will adjust to this uncertain policy position by including non-petition covenants in exempted limited partnership agreements, as has become increasingly common in open-ended hedge funds. Section 95(2) of the Companies Law provides that the Cayman Court must dismiss or stay a winding up petition where the petitioner is contractually bound not to present a winding up petition. That section has been incorporated by reference in section 15(4) of the Exempted Limited Partnership Law. There appears no reason, therefore, why simple non-petition covenants could not be deployed in partnership agreements, so moving the question of effective contracting out away from considerations of public policy and relying, instead, upon an express legislative enactment pursuant to which the Court holds stakeholders to their agreement not to petition to wind up the vehicle through which they have invested.
The second point in Cybernaut (arbitration as a necessary preliminary to hearing of the petition) was resolved against the GP and the petition was allowed to proceed to hearing.
Counsel for the GP argued that because the LPs' assertion of loss of trust and confidence was based upon allegations of breaches of contract, and those contractual breaches were disputed by the GP, those disputes should necessarily be resolved through arbitration before the petition could proceed. This argument was rejected by the Court because, unlike the case on which the GP relied3 in which the petitioner was seeking relief from oppression of particular shareholder rights (and so the remedy sought there was distinct from the collective action of winding up), the LPs in Cybernaut were not seeking redress for contractual breaches (such as damages, or injunctions to restrain further breaches), but were petitioning to wind up the Partnership. The Court in Cybernaut hypothesised that prior arbitration of disputed allegations underlying a petition could only be available where a petition involved a matter which was a discrete inter parties claim falling within the scope of an arbitration agreement or a matter which could properly be tried as a preliminary issue, but these comments were strictly obiter dicta. As a result, the court did not go on to address practical considerations like the cost-benefit of bifurcation, which is likely to influence the court's approach in any future case where this is proposed.
In debt petition cases, the Cayman Islands Court has treated the question of whether there is a genuine dispute about the debt as, itself, an issue to be determined by the Court, rather than through arbitration4. The Court's ruling in Cybernaut suggests that in a scenario where a limited partner seeks to wind up a partnership on just and equitable grounds (whether for loss of trust and confidence or, possibly, otherwise) a general partner will also struggle to stay the petition on the basis of the existence of an arbitration clause to resolve disputes between general partners and limited partners. The Court necessarily delves into the factual allegations and disputes when considering a winding up petition based on just and equitable grounds, and the Courts are accustomed to this being their province in such disputes. Cybernaut confirms that, as a matter of public policy, the Court, not arbitrators, will deal with any underlying dispute and its adequacy as a basis for winding up, notwithstanding the existence of an arbitration clause.
1 Grand Court of the Cayman Islands, Financial Services Division, Cause no. FSD 73 of 2013 (AJJ), 23 July 2013.
2 Notwithstanding these points of opposition, the GP agreed that the Partnership should be wound up; the case was essentially driven by a contest as to who should act as liquidator, the GP or an independent insolvency practitioner.
3 Fulham Football Club (1987) Ltd v Richards  Ch. 333
4 Ebullio Commodity Master Fund L.P. (unreported, 24 May 2013, Jones J.). If the Court finds a genuine dispute exists, the matter could then be referred to arbitration and the petition stayed.
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